To me, the focus for the market shouldn’t be on yields but more so the dollar and its counterparts across the globe. Inflation is the big threat, and other countries will start stimmying it up more than the US can. Things are getting worse for Europe and once they figure out how to deal with the surplus of vaccines in June, the (retail, main st.) market there will rebound as the countries truly open up again. The US will likely already be 100% open nationally (int’l is debatable), with restaurants, concerts, and public places all available for full capacity as vaccinations flood the market.
This is the main concern for the economy from an inflationary standpoint. We are already seeing commodities skyrocket, equities are hyperinflated and will likely get worse, and the economy will likely see such demand that it has never seen before. It will be beautiful. It can also be catastrophic to the bond market, especially one that is filled with so many poor graded bonds that the 10 year (that EVERYONE is focusing on) will be dumped for. Check junk bond and low grade bond etfs, JNK VCIT LQD HYG, the FED has been buying them since March since they were collapsing so fast. That is unprecedented. The FED would need to increase their buying significantly to match outflows in the current scenario, but before we go too deep into that, let me discuss what I am mainly making this post for.
The action we have been seeing recently has led to a market without heavy conviction. Lots of inward rotation into value stocks and the reopening trade bringing sentiment to aflame. Everyone wants in on the airlines, on cruises, on retail chains like M and KSS, every bank is pushing towards highs if they aren’t already at them. This trade will cool off as the market cools it off anyways, I mean oil just dumped 8% in a flash.
This all collectively reaches into a crescendo where the world will now focus on rebalancing currencies. It seems we have hit crescendo. With the Lira news (inflation of the Lira and now USD becoming much stronger) and with the effect that should have on the Euro and European banks, this will is start to give us more direction. Deflationary effect compared to other currencies etc. will matter very much so, as we are seeing with yields taking a quick nose dive that will likely be further supplemented by the repricing from Europe. Futures getting a breather especially with NQ, likely we see some more push into growth (looking at you FB and AMZN….) this week and some sentiment to catch up in certain sectors. I will keep posting my views as they come but this is healthy for both bonds, FX, and of course, the rigged bull market. Powell speaks multiple times this week, infra bill + more pump, and vaccine news will all hit the waves soon. See you in the morning, let me know if this helps with providing some of my perspective.
From 3-18-21, My views on today and this week. My focus right now are on junk bonds, HYG LQD JNK VCIT etc. Puts very illiquid but honestly these junk bonds will keep stair stepping down as yields grind. These bonds are really doomed if yields go up, and tech isn’t “crashing” as hard as the first yield runup recently because I think the math is being done on how much spillover the effect from yields on bonds will be onto tech and etc. the big risk is that this is happening gradually, then quickly. Yields took so long to move and now its moving way too fast, volatility flipping indices from overpriced to underpriced relative to yields. It is quite hard to stomach as a bull or bear, and even the big MMs aren’t taking bets. No large option flow that STICKS day to day.
Something that I’ve noted was the action that opens gets closed within a few days, whether calls or puts. Currently tactical sentiment leans bullish but has been fading. Hedge funds have been buying dips which is not what we want to see. Bears on social media are getting too cocky, which is what we want to see as bulls. I’ve been digging for sentiment but things catch a bid for such a short time… Semis sentiment is dead. Spac sentiment is dead. Cloud, close to dead. Oil was too hot but starting to cool off a little bit. PMs up then dead again, but not as dead as the first 3… We should get a better view after this “quad witching” week ends, but we really need some direction from the fed on this, as the river bends towards their will. FED is never out of bullets, they are the bullet factory. Fed is never behind the curve, they are the ones mathing it out. Hope this gives clarity about how murky the market is in my view, everyones holding their breath but inflows keep coming in. Tax selling may occur in the next 2 weeks since these were march lows.
Ace Chasing Charts 